Year-end Tax Update November 20, 2019 Webinar starts at noon CT Emily Keesling Ellen Decker Presented by Manager Manager Tax Services Tax Services
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Administration Emily Keesling Manager Tax Services Emily Keesling, a certified public accountant, provides business valuation and tax planning and compliance services for individuals and businesses. She works with a wide range of industries, including manufacturing and vehicle dealerships, as well as estates and trusts.
Administration Ellen Decker Manager Tax Services Ellen Decker, a certified public accountant, has multiple years of experience working with non- profits and private sector entities with expertise in tax compliance and planning services. Ellen is a member of the American Institute of CPAs and Kansas Society of CPAs.
Overview • Depreciation • Section 163(j) business interest expense limitation • Small business accounting method changes • Select non-deductible expenses • Wayfair sales tax case • Qualified business income (QBI) deduction • Excess business loss limitation • Qualified opportunity zone • Personal tax highlights • Estate and gift tax update
POLLING QUESTION #1 Please answer for continuing education credit
Depreciation • 100% bonus depreciation available for new and used assets • Eligible assets with tax life of 20 years or less • Assets must be placed in service by December 31, 2019 • Tax planning opportunity: timing of purchases and cost segregation study
Section 179 deduction • $1,020,000 maximum deduction • Phase-out begins at asset cost of $2.55 million • Cannot create a taxable loss • Qualified improvement property is eligible • i.e. roofing, HVAC, security systems and alarms • Tax planning opportunity: Kansas expensing deduction for C corporations
Depreciation Limitations for vehicles • Passenger cars, light trucks, and vans with GVW under 6,000 lbs • $18,100 (includes bonus depreciation) • SUVs with GVW over 6,000 lbs but under 14,000 lbs • Section 179 deduction: $25,500 • Passenger cars, light trucks, and vans with GVW over 6,000 lbs • No limits • Vehicles over 14,000 lbs • No limits
Business interest expense limitation • Section 163(j) / Form 8990 • Required when… • Average annual gross receipts over $26 million for prior 3 tax years, OR • Tax shelter • Floor plan financing interest is not subject to limitation
Step 1: Determine total business interest expense
Step 1: Determine total business interest expense
Step 2: Calculate adjusted taxable income
Step 3: 163(j) limitation calculation Adjusted taxable income (Step Two) Multiply by: 30% Subtotal Add: business interest income Add: floor plan financing interest Total: Maximum allowable deduction If less than Step One, then excess is carried forward
A few things to note • Excess business interest expense is carried forward indefinitely • For partnerships: • Allocated to partners • Not carried forward by entity • For S corporations: • Carried forward by entity
Small business opportunities • Small business defined: Average gross receipts under $26 million for 3 preceding tax years • Opportunities… 1. Cash basis reporting 2. Elect out of 263A Uniform Capitalization Rules • Accounting method changes require filing of Form 3115 – Request for Change in Accounting Method
Non-deductible expenses Meals & entertainment • Meals: • 50% non-deductible • Entertainment: • 100% non-deductible • Recreational and social activities primarily for benefit of employees: • deductible
Non-deductible expenses Spousal travel & gifts • Spousal travel: • Generally 100% non-deductible • Gifts • Gifts in excess of $25 to any individual are non- deductible • Track cumulative cost of gifts by recipient for tax purposes
Non-deductible expenses Qualified transportation fringe benefits Categories used to determine deductibility 1. Employer pays a 3 rd party for employee parking spots * Generally amount of expense paid is non-deductible 2. Employer provides transit passes or commuter vans/buses for employees * Generally amount of expense paid is non-deductible 3. Employer owns or leases all or part of a parking lot/facility *Further analysis required
Non-deductible expenses Qualified transportation fringe benefits Items to consider in determining non-deductible parking expenses: 1) How many parking spaces are reserved (using a barrier or sign)? • # Reserved for employees • # Reserved for general public or nonemployees 2) How many non reserved parking spaces are used by employees? 3) How many non reserved parking spaces are open to the general public? The costs allocated to spaces reserved for employees are nondeductible. The costs allocated to spaces reserved for the general public are deductible. 50% public use exception may apply
POLLING QUESTION #2 Please answer for continuing education credit
State & local tax: South Dakota v. Wayfair State Economic Nexus Threshold AL Over $250,000; effective 10/1/2018 AR Over $100,000 or 200 transactions; effective 7/1/2019 AZ Over $200,000 in 2019, $150,000 in 2020 and $100,000 in 2021; effective 10/1/2019 CA Over $100,000 or 200 transactions; effective 4/1/2019 CO Over $100,000 or 200 transactions; effective 12/1/2018 (grace period to 05/31/2019) Pending Litigation CT Over $250,000; effective 12/1/2018 DC Over $100,000 or 200 transactions; effective 01/01/2019 Future Economic Nexus GA Over $250,000 or 200 transactions; effective 07/01/2019 HI Over $100,000 or 200 transactions; effective 07/01/2018 Economic Nexus Active IA Over $100,000 or 200 transactions; effective 01/01/2019 Notice & Reporting Law Active ID Over $100,000 or 200 transactions; effective 06/01/2019 IL Over $100,000 or 200 transactions; effective 10/01/2018 IN Over $100,000 or 200 transactions; effective 10/01/2018 KY Over $100,000 or 200 transactions; effective 07/01/2018 KS Over $100,000 or 200 transactions; effective 10/01/2019** LA Over $100,000 or 200 transactions; effective 01/01/2019 As of November 5, 2019 MA Over $100,000 and 100 transactions; effective 10/01/2019 MD Over $100,000 or 200 transactions ME Over $100,000 or 200 transactions; effective 07/01/2018 MI Over $100,000 or 200 transactions; effective 10/01/2018 MN Over $100,000; effective 10/01/2018 MS Over $250,000; effective 09/01/2018 * May be invalid due to Wisconsin NC Over $100,000 or 200 transactions; effective 11/01/2018 ND Over $100,000 or 200 transactions; effective 10/01/2018 Circuit Court granting temporary NE Over $100,000 or 200 transactions; effective 03/21/2019 NJ Over $100,000 or 200 transactions; effective 11/1/2018 injunction NM Over $100,000; effective 7/1/2019 NV Over $100,000 or 200 transactions; effective 10/1/2018 NY Over $300,000 or 100 transactions OH Over $100,000 or 200 transactions; effective 08/01/2019 ** May be unconstitutional, OK Over $100,000; effective 11/01/2019 PA $100,000; effective 7/1/2019 KS AG released opinion RI Over $100,000 or 200 transactions; effective 11/01/2018 SC Over $100,000; effective 11/1/2018 SD Over $100,000 or 200 transactions opposing DOR’s remote seller TN Over $500,000; effective 10/01/2019 TX Over $500,000; effective 10/01/2019 policy UT Over $100,000 or 200 transactions; effective 1/01/2019 VA Over $100,000 or 200 transactions; effective 7/1/2019 VT Over $100,000 or 200 transactions; effective 7/01/2018 WA $100,000 as an alternative to notice reporting (also a $267,000 threshold B&O); effective 10/01/2018 WI Over $100,000 or 200 transactions; effective 10/01/2018* WV Over $100,000; effective 07/01/2019 WY Over $100,000 or 200 transactions; effective 2/1/2019
Qualified business income deduction Section 199A • Available to owners of Partnerships, S corporations, Individuals and Trusts. Not available to C corporations. • Deduction may be as high as 20% of qualified business income • Below-the-line deduction • Deducted after Adjusted Gross Income (AGI) • Currently not deductible on Kansas return, but stay tuned!
Qualified business income deduction Section 199A • The following must be determined for each trade or business activity: 1. The amount of Qualified Business or Specified Service income/loss for the tax year 2. The amount of W-2 wages paid 3. The amount of Unadjusted Basis Immediately After Acquisition (UBIA)
Qualified business income • Net amount of qualified items of income, gain, deduction or loss of a qualified trade or business of the taxpayer • Effectively connected to trade or business in U.S. • Included in taxable income • Excludes • Capital gains and losses • Dividends • Interest other than interest property allocable to a trade or business • Guaranteed payments
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